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23 April 2009


TriQuint sees demand return as handset inventory burns off

For first-quarter 2009, RF product maker and foundry services provider TriQuint Semiconductor Inc of Hillsboro, OR, USA has reported revenue up 7% from $111.1m a year ago to $118.9m. This was split between Asia (53%), Americas (38%) and Europe (9%).

Growth was led by handsets being up 24% (up $25m in 2.5/3G, offset by a $10m drop in 2G revenue) and defense & aerospace up 23% (driven by radar, R&D and satellite revenue, and insulated from economic drag). Reduced demand from wireless LAN, standard handsets, cable and optical products was offset by market strength in smart-phones (driven by TriQuint’s highly integrated module products for 3G handsets), the acquisition of WJ Communications in Q2/2008, and positive momentum in major military programs.

Due to the “challenging economic environment of inventory correction” and reduced short-term demand due to the economic weakness, Q1/2009 revenue is down 20% on the last quarter’s seasonally strong $149m (although the decline is at the low end of the forecast 19-26%).

In particular, handset revenue fell a seasonally typical 14% on the last quarter. Defense & aerospace revenue fell 16% (but this was due mainly to a customer program timing that pulled some planned Q1 revenue into Q4/2008). Networks revenue was down 29% sequentially (although base-station revenue grew as China’s investment in 3G infrastructure offset reduced GSM and CDMA infrastructure spending in other regions).

Of total revenue, 58% came from handsets (up from 54% last quarter), 28% from networks (down from 33%), and 14% from defense & aerospace (up slightly from 13%).

“The global economic downturn prompted lower inventory at our customers and very low factory utilization in Q1 [35% in the Hillsboro fab, down from 45% in Q4/2008 and 83% in Q3],” says president & CEO Ralph Quinsey. Due to the lower factory utilization and the revenue mix shifting from networks to handsets, gross margin has fallen from 30.2% last quarter to just 19.6% (offset slightly by the shift from 2G to 3G).

On a non-GAAP basis (excluding stock-based compensation charges, impairment charges, and charges associated with the WJ acquisition), operating expenses were cut by 6% ($2.5m) from last quarter to $37.3m (31.4% of revenue). This was driven by short-term cost-control measures that included mandatory time off for most staff, no bonus or profit-share payments, and restrictions on hiring, travel and other discretionary expenses.

Compared to a profit of $6.8m last quarter and $6.9m a year ago, non-GAAP net loss was $11m (at the favorable end of expectations). Despite this, cash flow from operations was $7.1m. After capital spending of $12.2m, cash, cash equivalents, and long-term investments fell only slightly during the quarter (by $2.9m to $99m).

“While first quarter sales and factory utilization were low, excess inventory both in the channel and at TriQuint was largely burned off,” Quinsey says. “We are now seeing signs of inventory normalization in some of our markets,” he adds. In particular, as handset inventory normalized, this led to what TriQuint describes as an inflection point of increasing demand late in the quarter. “This should translate into stronger demand in the coming months,” Quinsey says. “The handset inventory adjustment is largely behind us,” he reckons.

“The networks market is reacting more slowly to the down cycle than handsets and will be slower to normalize,” Quinsey continues. WLAN channel inventory will remain high well through Q2, suppressing revenue until shipments resume in Q3. However, excluding WLAN products, most channel inventory appears to have returned to normal levels.

TriQuint says that reduced visibility and greater-than-normal volatility in demand has caused it to be more cautious in translating order backlog into expected revenue. Nevertheless, for second-quarter 2009, the firm says that it is fully booked to the mid-point of its revenue guidance of $140-150m (up 18-26% on Q1). Fab utilization should rebound to 50-60% and non-GAAP gross margin to 30-35%, driving a return to profitability.

In particular, TriQuint expects strong handset revenue growth, driven by new products, inventory restocking and the popularity of SmartPhones. Handset mix continues to shift from 2G to 3G (and hence more GaAs content), driving improved handset margin.

In addition, non-handset revenue is expected to grow modestly, with strength in defense & aerospace and recovery in some other markets (after seeing pull-in activity since early this quarter). In particular, in networking TriQuint is shipping initial production volumes for the first design win of its TriPower base-station technology (which boosts power efficiency, requiring less energy for power and cooling). In the defense & aerospace market, after generating $40m of revenue over the last 7-10 years supporting about 180 aircraft in the F-22 program (now nearing the end of its life), TriQuint is moving into early-stages production for the F-35 Joint Strike Fighter (involving 3000 aircraft spread over 30 years). Although content per aircraft is lower, the forecasted revenue per year is much higher than for the F22.

See related items:

Impairment charges drive TriQuint into Q4 loss

TriQuint cuts Q4 revenue guidance from $160-175m to $140-145m

WJ boosts TriQuint’s 47% growth as profit triples

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